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Do You Have to Pay Back SBA Loans?

Do You Have to Pay Back SBA Loans?; Do you need to pay back SBA disaster relief loans? Learn all about the terms and conditions of these loans from Lantern by SoFi.
Susan Guillory
Susan GuilloryUpdated March 10, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
You may have heard a rumor circulating that there are business loans from the Small Business Administration (SBA) that you don’t have to pay back. Could that possibly be true? The short answer: All SBA loans need to be repaid. If you are wondering if there is forgiveness for small business loans as exists with some federal student loans, the answer is no.However, it’s important to understand that there’s more than one type of SBA loan–and among them there is one kind that possibly did not have to be repaid.  

What Is an SBA Loan?

The Small Business Administration backs several types of small business loans, each with its own unique characteristics.

7(a) Loans 

The 7(a) loans for small businesses are among the most popular options, as they offer up to $5 million at low interest rates and can be used for working capital, to refinance business debt, or to buy furniture, fixtures, or supplies. 

CDC/504 Loans

SBA’s CDC/504 loans also have a cap of $5 million. They can be used to purchase buildings or land, build new facilities, or buy equipment.

Microloans

There are also microloans for businesses who need a smaller amount of capital. These loans provide up to $50,000 to help businesses start up or expand operations.SBA loans, which are provided through banks and other approved lenders, are popular because they often offer lower interest rates than traditional banks and may have less stringent qualifications than some bank loans.Returning to the question of whether you have to pay back SBA loans: For the ones we’ve discussed so far, yes, you do. But there’s one other kind of SBA loan we haven’t talked about yet. That’s the Economic Injury Disaster Loan (EIDL).

What Is an Economic Injury Disaster Loan?

The Economic Injury Disaster Loan (EIDL) is offered to a business in a disaster area that has been negatively impacted.This loan was made available to businesses that weren’t able to pay their ordinary and necessary business expenses because of the qualifying disaster, and the funds provide working capital to help them resume business as usual. To qualify, businesses must not have been able to get financing elsewhere.A disaster could be a major storm, flooding, or drought. Or it could be a pandemic. Over 4 million businesses were approved for nearly $390 billion in COVID Economic Injury Disaster Loans.The Targeted EIDL Advance provided funds of up to $10,000 to applicants who were in a low-income community, could demonstrate more than 30% reduction in revenue during an eight-week period beginning on March 2, 2020, or later, and had 300 or fewer employees. The Supplemental Targeted Advance provided a supplemental payment of $5,000 that did not have to be repaid. The combined amount of the Supplemental Targeted Advance ($5,000) with any previously received EIDL Advance or Targeted EIDL Advance ($10,000) could not exceed $15,000.Applicants had to be located in a low-income community, prove more than a 50% economic loss during an eight-week period beginning on March 2, 2020, or later, and had 10 or fewer employees. As of January 1, 2022, the SBA stopped accepting applications for new COVID-19 EIDL loans or advances.Recommended: Understanding Different Types of Small Business Loans

Economic Injury Disaster Advance Grants

We’re now ready to answer your question: do you have to pay back SBA disaster loans?There’s something unique about the EIDL, due to the nature of the COVID-19 pandemic.Early recipients of the EIDL were eligible for EIDL Advance funds, which didn’t have to be repaid. There was a cap of $1,000 per employee for eligible applicants, up to $10,000. A total of $20 billion was given in these Advance grants.Recipients did not have to be approved for an EIDL loan to receive the Advance. Those that were receiving a loan had the amount of the Advance deducted from their total loan eligibility.Recommended: Small Business Grants: Free Money for Your Business

Do I Have to Pay Back an SBA Disaster Relief Loan?

To summarize: If you received an Economic Injury Disaster Loan, you are required to pay it back in full. However, if you received your loan during the period when either of the Advance funds were offered and you were approved for an Advance, that portion did not have to be repaid.

Hardship Plan for Covid Loans

Some businesses are struggling to repay their COVID-19 loans from the SBA. While they hoped their businesses would be back on a sure footing, inflation or other issues have caused revenue shortfalls.The SBA is offering a Hardship Accommodation Plan for borrowers experiencing short-term financial challenges. Borrowers eligible for this plan may make reduced payments for six months. Interest will continue to accrue, which may increase (or create) a balloon payment due at the end of the loan term.

Terms

  • Borrowers are required to pay at least 10% of their monthly payment amount (with a $25 minimum), for six months.  
  • During the Hardship Accommodation period, borrowers can voluntarily make larger payments.
  • The regular monthly payment amount will resume and be required after the six-month Hardship Accommodation period ends. Borrowers may be able to renew the Hardship Accommodation Plan, if necessary.
Recommended: What to Do if You Can't Pay Back Your EIDL Loan?

EIDL Loan Terms

The COVID-19 loans might not be available any longer, but the EIDL program may be worth considering if your business qualifies due to a natural disaster.Businesses of all sizes located in declared disaster areas, private nonprofit organizations, homeowners, and renters affected by declared disasters, including civil unrest and natural disasters such as hurricanes, flooding, and wildfires.

Eligibility

  • Substantial economic injury means the business is unable to meet its obligations and pay its ordinary and necessary operating expenses.
  • EIDL provides the necessary working capital to help small businesses impacted by a disaster survive until normal operations resume.  
  • EIDL assistance is available only to small businesses when SBA determines they are unable to obtain credit elsewhere. 
Recommended:  Conventional Loans vs. SBA Business Loans

The Takeaway

The EIDL Covid loans, low-interest loans from the SBA offering help through the pandemic, were very helpful to small businesses. Just as all small business loans must be repaid, the EIDL loans must all be repaid except for some of the Advance loans granted early on in the epidemic. The EIDL program is still in existence, but for businesses that have suffered the impact of natural disasters, not Covid.You can still get a small business loan with Lantern by SoFi. We’ll show you an offer you are eligible for in our network so you can choose the best financing option for your business.

Frequently Asked Questions

What can I use EIDL funds for?
Can I still get an EIDL loan because of COVID-19?
Is there forgiveness for EIDL loans if you can’t pay?
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About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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